Lawyer likens Storm collapse to Watergate

A Sydney lawyer acting for Storm Financial investors in class actions has likened the growing evidence he has compiled against various financial bodies to Watergate.Stewart Levitt, principle of

A Sydney lawyer acting for Storm Financial investors in class actions has likened the growing evidence he has compiled against various financial bodies to Watergate.

Stewart Levitt, principle of Levitt Robinson, has filed separate Federal Court proceedings against the Commonwealth Bank (CBA) and Colonial First State Investments on behalf of over 400 disgruntled Storm Financial Investors.

He now claims that it is highly likely more actions will be filed, bringing together "additional material I have managed to assemble", which he says exposes questionable activity not just from the CBA, but also PriceWaterhouseCoopers (PwC), Macquarie Bank and the Australian Securities and Investment Commission (ASIC).

"I am currently putting together a further dossier, which goes beyond what we have pleaded to date," Levitt told Lawyers Weekly. "It is like Watergate, this thing. You have to talk to a lot of people, there are a lot of deep throats, and you have to put it all together."

Levitt believes that PwC, the auditor for Storm on the float and auditor for Colonial First State, might have understated its exposure to Storm when the company's Prospectus was initially tabled. He has also raised questions about the decision of Macquarie Equity Capital Markets to pull out as lead manager of the Storm float just prior to it going to market.

"What, if anything, did Macquarie know about Storm at the end of October 2007, which it did not pass onto Storm investors?" Levitt said. "Macquarie continued in the meantime to fund customers into margin loans, well above their capacity to repay, unless the market continued to rise - and it plunged."

When contacted by Lawyers Weekly, a Macquarie Bank media spokesperson referred to a previous submission made by its managing director and chief executive officer, Richard Sheppard, to a Parliamentary Joint Committee in August 2009.

Sheppard said that sharp falls in the Australian share market in October 2008 resulted in Storm clients moving into margin call. Sheppard acknowledged that many margin lending clients suffered losses as a result of the market downturn, but that Macquarie acted in accordance with standard industry practice by notifying the financial advisers of its margin lending clients, including Storm, of the need to satisfy these margin calls.

ASIC and the banks in secret negotiations

In March, ASIC revealed that it has been in confidential negotiations with what it describes as "entities which have been the subject of its investigations to see if a commercial resolution could be reached ... to recommend to investors."

Last Friday (15 October), the regulator said that on 24 November it will consider whether an acceptable compensation outcome has been agreed in principle with the entities, leaving open the possibility of litigation if no such agreement has been reached.

ASIC has not named who it is in discussions with, but Levitt believes it is the banks.

"In this environment, how could a Storm investor who has been sold out by the banks under ASIC's watch, be confident that ASIC and the banks will now act fairly and appropriately, to give their victims as much as they could access through the courts," he said.

Both ASIC and the CBA declined to confirm whether they were in ongoing discussions with regard to the Storm Financial collapse. However, CBA spokesman Steve Bennett told Lawyers Weekly that "the Bank is committed to ensuring we resolve these issues".

The CBA unsuccessfully tried to stop Levitt Robinson acting for borrowers as part of the CBA's Resolution Scheme, which was initially negotiated by CBA and Slater & Gordon in February. Levitt said that, as the legal representative of over 400 victims of the Storm collapse, he has spoken with and written to senior members of ASIC management about being involved in its ongoing discussions with the un-named entities, but is still waiting to hear back from them.

Levitt has recently been in Queensland, where the majority of Storm investors reside, to provide updates on the status of his class action cases. He will be next speaking in Brisbane on Tuesday 26 October.

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